2025 (5) TMI 617 - AT - Income Tax

Reopening of assessment u/s 147 beyond period of limitation - information flagged as per Risk Management Strategy formulated by the CBDT through ITBA - HELD THAT - As held in the case of Suman Jeet Agarwal 2022 (9) TMI 1384 - DELHI HIGH COURT held that the date on which digitally signed has to be considered. In the given case the notice was digitally signed only on 02.04.2022. Therefore the relevant provisions as per amended with effect from 01.04.2022 are applicable. Therefore the relevant provisions as applicable are as per section 149(1)(b) no notice u/s 148 shall be issued if three years have elapsed from the end of relevant AY unless the AO has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax represented in the form of as asset expenditure or an entries which has escaped assessment amounts to or likely to amount fifty lakh rupee or more. As the escaped assessment amount is only Rs. 17.80 lakhs. Therefore the notice issued u/s 148 is without jurisdiction. Further it is brought to our notice that as per the declared income in the return of income filed for the year under consideration is Rs. 77.36 lakhs and as per the CBDT instruction no 1/2011 dated 31.03.2011 the jurisdiction lies only with the ACIT whereas the notice and assessment was completed by the ITO. Even on this count the notice issued is beyond the jurisdiction of the present assessing officer. Therefore we are inclined to allow the additional ground raised by the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the notice issued under section 148 of the Income-tax Act, 1961 (hereinafter 'the Act') for reassessment is valid and within jurisdiction, or whether it is barred by limitation and hence liable to be quashed;

(b) Whether the reassessment proceedings initiated under sections 147 to 151A of the Act comply with the statutory provisions and are legally sustainable;

(c) Whether the addition of Rs. 17,89,800/- on account of alleged bogus purchases from M/s. Hanuman Enterprises is justified and sustainable;

(d) Whether the change in the head/section of income from section 69C to section 37(1) of the Act by the Commissioner of Income Tax (Appeals) (CIT(A)) is valid and in accordance with law;

(e) Whether the order passed by CIT(A) is in conformity with the provisions of section 251 of the Act;

(f) Jurisdictional issue regarding the authority competent to issue the notice under section 148 in light of CBDT Instruction No. 1/2011 dated 31.01.2011.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity and jurisdiction of notice under section 148 and legality of reassessment proceedings

Relevant legal framework and precedents:

Section 148 of the Act empowers the Assessing Officer (AO) to issue a notice for reassessment if income has escaped assessment. However, section 149(1) imposes time limits on issuance of such notices. Specifically, if more than three years have elapsed from the end of the relevant assessment year, no notice under section 148 can be issued unless the escaped income is Rs. 50 lakh or more, as per section 149(1)(b), effective from 1 April 2022. The Hon'ble Delhi High Court in Suman Jeet Agarwal v. ITO held that the date of issuance of notice under section 148 is the date on which the notice is digitally signed, not the date mentioned on the notice itself.

Court's interpretation and reasoning:

The Tribunal noted that the notice under section 148 was dated 31 March 2022 but was digitally signed and issued on 2 April 2022. Since the amendment to section 149(1)(b) took effect from 1 April 2022, the post-amendment provisions apply. The escaped income alleged was Rs. 17.80 lakhs, which is below the Rs. 50 lakh threshold. Therefore, the notice issued on 2 April 2022 is barred by limitation and without jurisdiction.

Additionally, the Tribunal observed that as per CBDT Instruction No. 1/2011, jurisdiction for the case lay with the Assistant Commissioner of Income Tax (ACIT), but the notice was issued and assessment completed by the Income Tax Officer (ITO), which is beyond the jurisdiction of the AO issuing the notice. This further invalidates the notice.

Key evidence and findings:

Digital signature date on the notice (2 April 2022), income declared in return (Rs. 77.36 lakhs), escaped income alleged (Rs. 17.80 lakhs), and CBDT Instruction No. 1/2011 on jurisdiction.

Application of law to facts:

The Tribunal applied the amended section 149(1)(b) and the ruling in Suman Jeet Agarwal to conclude that the notice was issued after the limitation period without satisfying the Rs. 50 lakh threshold for escaped income. The jurisdictional defect was also established based on CBDT instructions.

Treatment of competing arguments:

The Revenue relied on the orders of the lower authorities and the reopening based on risk management strategy. However, the Tribunal rejected these arguments on the ground of limitation and jurisdiction.

Conclusions:

The notice under section 148 is without jurisdiction and barred by limitation. Consequently, the reassessment proceedings and assessment order based on this notice are liable to be quashed.

Issue (c): Legitimacy of addition of Rs. 17,89,800/- on account of alleged bogus purchases

Relevant legal framework and precedents:

Section 69C of the Act deals with unexplained expenditure and allows addition to income if the expenditure is unexplained. The burden lies on the assessee to prove genuineness of transactions. However, additions cannot be made solely on conjecture or surmises without evidence.

Court's interpretation and reasoning:

The AO disbelieved the purchases from Hanuman Enterprises, alleging it to be a paper entity issuing fake invoices. The assessee submitted tax invoices, transporter receipts, bank statements, ledger accounts, sale details, GST returns, and other documents. The AO found these insufficient as no documentary evidence was provided regarding order placement, terms and conditions, bids, e-way bills, or receipt dates of goods.

However, since the reassessment itself was held invalid due to jurisdiction and limitation issues, the Tribunal did not adjudicate this issue.

Key evidence and findings:

Invoices, transporter receipts, bank statements, ledger accounts, GST returns submitted by assessee; AO's observations on missing documentary evidence.

Application of law to facts:

The AO applied section 69C to add the amount as unexplained expenditure. The CIT(A) confirmed the addition but changed the section to 37(1). The Tribunal, however, refrained from adjudicating this issue due to the jurisdictional infirmity of the reassessment notice.

Treatment of competing arguments:

Assessee argued genuineness supported by documentary evidence; AO and CIT(A) relied on lack of complete evidence and suspicion of bogus purchases.

Conclusions:

Issue kept open by the Tribunal pending validity of reassessment proceedings.

Issue (d): Change of section from 69C to 37(1) by CIT(A)

Relevant legal framework and precedents:

Section 69C relates to unexplained expenditure, whereas section 37(1) allows deduction of any expenditure incurred wholly and exclusively for business purposes unless prohibited. Section 251 governs the powers of CIT(A) and procedural fairness including issuing show-cause notices before altering assessments.

Court's interpretation and reasoning:

The CIT(A) changed the section of addition from 69C to 37(1) without issuing any show cause notice to the assessee. The Tribunal found this action erroneous and without jurisdiction, violating section 251 of the Act.

Key evidence and findings:

Order of CIT(A) changing section; absence of show cause notice; reliance on decisions in Prashant Pitti v ACIT and The Abhinandan Cooperative Group Housing Ltd v ITO.

Application of law to facts:

The Tribunal held that the CIT(A) cannot change the section of addition without following due procedure under section 251, including issuing a show cause notice.

Treatment of competing arguments:

The assessee challenged the change as illegal; Revenue supported CIT(A)'s order. Tribunal sided with assessee on procedural grounds.

Conclusions:

The change of section by CIT(A) without procedural compliance is invalid.

Issue (e): Compliance with section 251 of the Act by CIT(A)
Relevant legal framework and precedents:

Section 251 requires the appellate authority to give the assessee an opportunity of being heard and issue a show cause notice before making any order prejudicial to the assessee.

Court's interpretation and reasoning:

The CIT(A) failed to issue a show cause notice before changing the section of addition, violating section 251. This procedural lapse vitiates the order.

Key evidence and findings:

Absence of show cause notice; procedural requirements under section 251.

Application of law to facts:

The Tribunal emphasized adherence to procedural safeguards and held CIT(A)'s order non-compliant.

Treatment of competing arguments:

Assessee relied on procedural safeguards; Revenue did not contest procedural lapse.

Conclusions:

Order of CIT(A) is contrary to section 251 and liable to be set aside on this ground.

Issue (f): Jurisdiction of AO to issue notice under section 148 in light of CBDT Instruction No. 1/2011

Relevant legal framework and precedents:

CBDT Instruction No. 1/2011 provides guidelines on jurisdictional assignments for assessment and reassessment proceedings. Jurisdiction must be exercised by the AO competent as per these instructions.

Court's interpretation and reasoning:

The Tribunal found that the case was under jurisdiction of ACIT as per CBDT instruction, but the notice and reassessment were done by ITO, which is without jurisdiction.

Key evidence and findings:

CBDT Instruction No. 1/2011; facts on AO issuing notice and completing assessment.

Application of law to facts:

Since the notice was issued by an AO lacking jurisdiction, the reassessment proceedings are invalid.

Treatment of competing arguments:

Assessee relied on CBDT instruction; Revenue did not dispute jurisdictional defect.

Conclusions:

Notice under section 148 is without jurisdiction and invalid.

3. SIGNIFICANT HOLDINGS

"The notice under section 148 dated 31.03.2022 was actually issued on 02.04.2022, as evident from the digital signature recorded on the face of the notice. Therefore, the relevant provisions as per amendment effective from 01.04.2022 are applicable. As per section 149(1)(b), no notice under section 148 shall be issued if three years have elapsed from the end of the relevant assessment year unless the escaped income amounts to Rs. 50 lakh or more. In the present case, the escaped income is only Rs. 17.80 lakhs. Therefore, the notice issued under section 148 is without jurisdiction."

"The jurisdiction over the case as per CBDT Instruction No. 1/2011 dated 31.03.2011 lies with the Assistant Commissioner of Income Tax (ACIT), whereas the notice under section 148 and assessment was completed by Income Tax Officer (ITO). Hence, the notice issued is beyond the jurisdiction of the present assessing officer."

"The CIT(A) has changed the section of addition from section 69C to section 37(1) without issuing any show cause notice to the assessee, which is contrary to the provisions of section 251 of the Act and hence, the action is erroneous and without jurisdiction."

Core principles established include strict adherence to limitation periods for reassessment notices, the binding nature of jurisdictional assignments under CBDT instructions, and the necessity of procedural fairness including issuance of show cause notices before altering assessment orders.

Final determinations:

- The notice under section 148 is barred by limitation and without jurisdiction, thus reassessment proceedings and assessment order are quashed.

- Jurisdictional defect in issuance of notice further invalidates reassessment.

- Other grounds including the addition on merits and change of section are left open and not adjudicated due to invalidity of reassessment proceedings.